Time to pay attention to staff’s periods of notice

There are numerous issues to consider before terminating an employee’s contract of employment. Will the dismissal be fair? Will it be discriminatory? And so on. Another consideration is whether the employee is entitled to notice of termination and, if so, whether they are entitled or required to serve it out.

In most cases contracts of employment will state that, unless employees are guilty of gross misconduct, they are entitled to receive notice. The length of the notice period will usually depend on seniority or level of remuneration, and is essentially a matter for the employer and employee to agree between themselves.

The Employment Rights Act 1996 states that employees are entitled to minimum periods of notice. If the contract gives a shorter period then, even if that is what the parties have agreed, the Act takes precedence over the contractual notice period.

So employees with between a month and two years’ continuous service must be given at least a week’s notice. After that the employee builds up one week’s notice for each year of continuous service up to a maximum of 12 weeks’ notice. So an employee who has 20 years’ service must receive at least 12 weeks’ notice, even if the contract gives only one week.

A more problematic issue is where there has been no agreement on notice. For instance, if no written contract has been entered into and nothing has been agreed orally, or there is a written contract but it is silent on notice.

Here the law states that as there is no express term covering notice, a period of reasonable notice must be implied.

It is a typically unpredictable art trying to determine how long (or short) a reasonable period of notice might be. The statutory periods referred to above are of little help.

Consideration must be given to such issues as what the parties intended when they entered into the contract or what they would have agreed had they put their minds to the subject of notice. Reference is often made to seniority and what the industry norm is for the category of employee in question.

Disputes tend to start with the employee starting high, the employer going in considerably lower, and the two then meeting somewhere in the middle to avoid ending up in court.

The Employment Appeal Tribunal recently considered the question in Clark v Fahrenheit 451 (Communications), in which a director with three months’ service claimed that six months would be a reasonable period of notice. The employer was prepared to give her only one month.

An employment tribunal held that one month was reasonable. In reaching its decision it took into account the employee’s length of service. A notice period twice as long as her length of service would not be reasonable, it said.

It also considered it relevant to the reasonableness of the notice period the fact that the company was in a poor financial state. The employee had previously expressed her belief that her fellow directors, if dismissed, should be paid one month’s notice. This was relevant too, the tribunal decided.

The EAT overruled the tribunal. Although length of service and the employee’s own belief were relevant markers, the EAT held, the tribunal had failed fully to take into account her seniority and status.

It was also wrong to have used the financial state of the company to indicate whether six months was reasonable; notice periods should not fluctuate depending on how profitable the employer is. Three months’ notice was reasonable in this case, according to the EAT, but it specifically said that it was not laying down any general principles.

What the case does demonstrate, however, is the importance of stating the notice period clearly in the contract.

By Alastair Brunker, a solicitor specialising in employment law at Shell International